Supervalu Launches Single-Serve Coffee

Leading grocery chain Supervalu Inc. (SVU) stepped into the world of single serve coffee products through its new Delight Single Serve UnCup. The new product will be available in all of 1,100 of the company’s retail stores starting September 2012.

Management claims the new single-serve UnCup pod to be economically priced and is more environment friendly as they use 30% less weight compared to other leading brands. Moreover, these pods are compatible with the Keurig Single Cup Brewers.

Supervalu presently offers coffee is offered in six flavors and expects to expand the portfolio further. However, the single serve coffee of the company will face tough competition from several coffee giants such as Starbucks Corporation (SBUX), The Kroger Company (KR) and The J.M. Smucker Company (SJM) who offer single serve coffee product compatible with Keurig brewers.

These new of brand building initiatives and innovations are expected to boost Supervalu’s second quarter fiscal 2013 sales. The company delivered poor first quarter fiscal 2013 earnings per share of 19 cents, sharply lower than the Zacks Consensus Estimate of 38 cents and the prior-year quarter earnings of 35 cents a share.

The lower-than-expected results were due to the disappointing same-store sales during the quarter coupled with disposition of several fuel centers owned by the company.

Revamp Initiatives

The company has undertaken several initiatives like ‘fair price plus promotion strategy,’ cost-reduction program, reduction of capital expenditures and also decided to suspend the quarterly dividend in order to be at par with its competitors, have financial flexibility, and also to have a strong balance sheet.

The company also announced very recently that it will close down 60 underperforming stores by December 2012, including 38 in its retail food reporting segment and 22 Save-A-Lot locations.

Our Recommendation

We currently have a Neutral recommendation on Supervalu. The stock carries a Zacks #4 Rank (a short-term Sell rating).